New pension fund regulations for South Africa – what you need to know

 ·5 Jul 2022

The National Treasury has published final amendments to regulation 28 of the Pension Funds Act, laying out the new limits and conditions for pension funds to invest certain assets.

Regulation 28 protects retirement fund member savings by limiting the extent to which funds can invest in a particular asset or in particular asset classes, and prevents excessive concentration risk.

The regulations widen the scope of potential investments for retirement funds but continue to leave the final decision on any investment to the trustees of each fund, who determine the investment policy for any fund.

The published amendments make some changes to these regulations, specifically, introducing a definition of infrastructure, and setting a limit of 45% for exposure to infrastructure investment. The regulations also confirm the new 45% limit for exposure to foreign assets, which investors and economists have welcomed.

“The aim of the amendment is to explicitly enable and reference longer-term infrastructure investment by retirement funds, by increasing maximum limits that funds may invest in,” Treasury said.

“To further facilitate the investment in infrastructure and economic development, the limit between hedge funds and private equity has been split. There will now be a separate and higher allocation to private equity assets, which is 15%, increased from 10%.”

Crypto assets

Notably, retirement funds will continue to be prohibited from investing in crypto assets. “The excessive volatility and unregulated nature of crypto assets require a prudent approach, as recent market volatility in such assets demonstrates,” Treasury said.

Additionally, a limit of 25% has been imposed, across all asset classes to limit exposure of retirement funds to any one entity (company), not just infrastructure.

However, one exception to the per entity limit, is debt instruments issued by, and loans to the government and any debt or loan guaranteed by the government. The asset allocation to housing loans granted to retirement fund members will also be reduced from 95% to 65% in respect of new loans only.

“This is meant to curb abuse of the housing loan scheme by fund members. The National Treasury is mindful of the important role played by housing ownership in wealth creation and in retirement and will continuously monitor this area of investment,” it said.

As part of aligning various regulatory approaches and achieving consistency, only investments in CISCA-approved hedge funds will be permitted.

The amendments will take effect on 3 January 2023, to enable regulators and fund managers to comply with the new regulations.

The Financial Sector Conduct Authority is finalising the standard on reporting requirements aligned to the revised regulation 28 and will issue it for public comment soon, Treasury said.

Read: Why South Africa’s new pension rules are good for investors: economist

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